OnLive games, which are processed on remote servers and streamed as compressed audio and video, will be playable on the tablet using touch screen controls. In a demonstration video posted by Slashgear, OnLive Chief Executive Steve Perlman plays through a version of Virtua Tennis 2009 whose controls have been retooled for the tablet. HTC’s press release says a “variety of games” will be available including Assassin’s Creed Brotherhood, NBA 2K11 and Lego Harry Potter.

The Flyer can also plug into televisions via HDMI for big-screen play with the OnLive game controller, effectively turning the tablet into a MicroConsole set-top box.

The tablet application is kind of neat because, unlike PCs or game consoles, tablets are simply not capable of playing high-powered video games on their own. I like the idea of OnLive, but I can’t justify the service in my living room because my game consoles are more reliable and have a better selection of games. A tablet app allows OnLive games to go where console and PC games cannot.

So I hope OnLive’s partnership with HTC doesn’t preclude other tablets from some day supporting the service. I’ve pinged OnLive to find out whether the deal with HTC is exclusive.

Even if it’s not, OnLive might have trouble finding its way onto other tablets without being pre-installed. Google doesn’t allow app stores within its own Android Market, as proven by Kongregate’s Flash game portal, and I don’t think Apple would allow it either, at least not without taking a 30 percent cut of all purchases. (The iPad’s existing OnLive app lets you watch, but not play, games.)

The Flyer, a 7-inch tablet with a 1.5 GHz processor running Android 2.4, will be available in the second quarter of this year.

By the way, tablets seem to be the best use for this service. Console games with non of the hardware requirements on a portable device. Pretty amazing especially if you could add a console blue tooth controller as well.

That would be great, though I do think the ideal would be app market distribution, as that's where most people are looking, or pre-loading. Also, some carriers (like AT&T) could have restrictions on sideloading apps.